Centralism, Federalism, and the Nature of Individual Preferences

Almost all of economic theorizing takes individual preferences as givens, and then proceeds to analyze individuals' choices within the constraints that they face. This paper takes into account the fact that preferences are to some extent endogenous, and that the state typically plays an important role in shaping individual preferences through its education and other policies. It analyzes the consequences of assuming both exogenous and endogenous preferences, and homogeneous and heterogeneous preferences for the choice between centralized and decentralized (federalist) government structures. Given the increasingly heterogeneous nature of individual preferences, more decentralized, federalist structures are deemed likely to be optimal. Ironically, at the same time an increasing tendency to proclaim and impose cross nationally a set of universal values can be discerned.